The different effects of oil and gas supply shocks on euro-area inflation

This paper examines the heterogeneous pass-through of oil and gas supply shocks to consumer inflation, using granular euro-area HICP data and externally identified instruments. We find that the inflationary impact of oil shocks is short-lived, whereas gas shocks generate stronger and substantially more persistent effects. Direct transmission to fuel prices occurs immediately for oil shocks, while gas shocks pass through more gradually to household energy bills. The granular analysis reveals significant heterogeneity in the transmission to non-energy prices: food prices adjust rapidly and sharply, whereas core components respond less and with a considerable delay. We further document that the prevailing inflation regime is a key conditioning factor: the indirect effects are largely muted in low-inflation environments, but become pronounced in high-inflation regimes, particularly for gas shocks. We apply this framework to the 2026 energy shock and we argue that its inflationary consequences are likely to be more contained than those observed during the 2021–22 episode, given the comparatively moderate increase in gas prices. However, since broader indirect and second-round effects crucially depend on how long energy costs remain elevated, uncertainty remains high.